Chapter 3

Question 1

Budget

Answer 1

Report that gives a financial description of one part of a business’ planned activity

Question 2

Management by exception

Answer 2

Management principle where an entrepreneur focuses on improving the activities that show significant differences between budgeted and actual results

Question 3

Operating cycle of a retail business

Answer 3

The average time it takes a retail business to use cash to buy goods for sale (called inventory), to sell these goods to customers, and to collect cash from its customers

Question 4

Operating cycle of a service business

Answer 4

The average time it takes a service business to use cash to acquire supplies and services, to sell the services to customers, and to collect cash from its customers

Question 5

Master budget

Answer 5

Set of interrelated reports showing the relationships among a business’ goals to be met, activities to be performed, resources to be used, and expected financial results

Question 6

Projected balance sheet

Answer 6

Statement summarising a business’ expected financial position (assets, liabilities and owners equity) at the end of the budget period

Question 7

Sales budget

Answer 7

Budget showing the number of units of inventory that a business expects to sell each month, the related monthly sales revenue, and in which months the business expects to collect cash from these sales

Question 8

Selling expenses budget

Answer 8

Budget showing the expenses and related cash payments associated with planned selling activities

Question 9

General and administrative expenses budget

Answer 9

Budget showing the expenses and related cash payments associated with expected activities other than selling

Question 10

Cash budget

Answer 10

Budget showing a business’ expected cash receipts and payments and how they affect the business’ cash balance

Question 11

Operating activities section

Answer 11

Section of a business’ cash flow statement that summarises the cash receipts and payments from its actual operating activities

Question 12

Investing activities section

Answer 12

Section of a business’ cash flow statement that shows the cash receipts and payments from its actual investing activities

Question 13

Financing activities section

Answer 13

Section of a business’ cash flow statement that shows the cash receipts and payments from its actual financing activities

Question 14

Projected income statement

Answer 14

Statement summarising a business’ expected revenues and expenses for the budget period

Question 15

Cost report

Answer 15

Report showing a comparison between a business’ budgeted and actual expenses for an accounting period